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robertogreco : mattrognlie   1

interfluidity » Home is where the cartel is
"Housing is a bitch.

A case can be made that divisive hot-button issues like inequality and immigration ultimately derive from housing dysfunction. Kevin Erdmann eloquently tells the tale. Matt Rognlie has famously argued that the increase in capital’s share of income, often blamed for inequality, is due largely to housing, once depreciation is taken into account. All of this reinforces the thesis of people like Ryan Avent, Edward Glaeser, and Matt Yglesias who have argued for years that housing supply constraints are to blame for high rents in powerhouse cities, and may constitute an important drag on productivity growth and a cause of macroeconomic stagnation. (See also Paul Krugman, quite recently.) Several of these writers argue that cities should eliminate restrictive zoning and other regulatory barriers to development, then let the free-market create housing supply. In a competitive marketplace, high prices are supposed to be their own cure. Zoning restrictions, urban permitting, and the de facto capacity of existing residents to veto new development are barriers to entry that prevent the magic of competition from taking hold and solving the problem.

My view is that the “market urbanist” diagnosis of the problem is more persuasive than its prescription for addressing it. As a positive matter, they just won’t win the political fights they propose. On normative grounds, I’m not sure that they should. The market urbanists present themselves as capitalist deregulators but I think they can be described with equal accuracy as radical redistributionists. The customary property rights surrounding homeownership in many cities and suburbs include much more than the use of a square of earth and whatever is built on it. Existing homeowners bought into particular neighborhoods in large part because of their “character”, which includes nice-sounding things like walkability or “charm”, as well as not-so-nice-sounding things like access to exclusionary education. Newer residents have bought and paid for those amenities, while older residents may feel they have earned them by helping to create them. Economists describe houses as a form of capital that provides a stream of services, rather than a cash flow, to owner-occupants. We should also describe the arrangement of neighborhoods as a form of capital that provides services people value. Property owners have disproportionate use of, and, informally, enjoy substantial control rights over this “neighborhood capital”, and these benefits have been capitalized into residential real-estate prices. (Location, location, location!) “Zoning reform” is an anodyne way to describe an expropriation of those customary rights. It amounts to diminishing residents’ ability to preserve or control the evolution of their neighborhoods, in order to challenge the exclusivity on which the value of existing neighborhood amenities may be based.

Market urbanists sometimes respond that eliminating restrictions should, in economic terms, be good for existing property owners. Suppose I own a plot of land, and today I’m only allowed to have a two story house on it. If tomorrow I suddenly have the right to build ten stories, but I can still keep the little house if that’s what I prefer, the new option can only improve my property’s value, right? Surely de-zoning would be a windfall for property owners, as land prices would include part of the capitalized stream of rents from the ten urban lofts that could now, potentially, be built there.

This is unpersuasive “partial-equilibrium” reasoning, which explains why homeowners are usually unpersuaded. Any given property owner rationally wants restrictions lifted on the use their own property, but lifting restrictions on neighbors’ use of their properties creates risks and costs. The ultimate effect of a general upzoning is hard to predict and may not be positive for incumbents, especially when potential impairment existing amenities — “neighborhood capital” — is factored in. Far from being a sure gain to existing residents, upzoning is a form of risky investment, the proceeds of which will be shared with developers and new residents, the costs of which will be concentrated on people whose financial statements and human lives are deeply exposed, with little diversification, to the quality of their neighborhoods. Even if, in aggregate, land values increase, densification of an existing neighborhood creates risks for individual property owners they many not wish to bear. If an apartment block is built next door, my old neighbor may have gotten rich from selling, but my plot may not be suitable for putting up yet another tower, and my home may be worth less for its busy, unquaint new neighbor. People experience individual not aggregate outcomes, and individual outcomes are usually riskier than aggregate outcomes. Absent some insurance mechanism, it is rationally hard to persuade individuals to consent to policy changes that, in aggregate terms, would meet a return-to-risk hurdle but at an individual level might not. When market urbanists point to how much more productive and awesome the city as a whole might become, they are missing this point."



"I don’t know what will work. But, looking around a bit, I’d suggest we take a look at two particularly promising examples. The housing policies of Singapore and Germany couldn’t be more different. But both countries have been remarkably successful.

Singapore never solved the problem we are banging our head against, how to take existing prosperous neighborhoods and make them more dense. It never tried. Instead, Singapore expanded its housing supply, at remarkable speed and scale, by building out extremely dense but nevertheless green, livable, and attractive “new towns“. Rather than restricting our attention to putting more housing in existing desirable neighborhoods, why not follow Singapore and build new neighborhoods, and when we run out of space for those, new ring cities? Singapore has done a ton of experimenting, in regulation, architecture and urban design, in putting greenspaces around (and on) increasingly creative high-rise developments. Obviously, Singapore is very different, socially and politically, than the United States and other Western countries. Some things won’t (and shouldn’t) translate. But we still have a lot to learn from their experience. Are we really incapable of building new, compact, microcities without their becoming Cabrini-Green or the banlieues of Paris?

Germany’s virtues are less sexy than Singapore’s sci-fi eco-towers. But they are great virtues nonetheless. Somehow, Germany has managed to avoid the price booms that in so many countries (including the Scandinavians) have segregated society between those who were homeowners at just the right times and those who were not. Germany’s path is ideologically mixed. On the one hand, German property owners have a right to build within broad planning parameters. On the other hand, what we in the United States call rent controls are universal in Germany. (German leases are implicitly “rent stabilized”. Berlin has recently begun an experiment with old fashioned administered prices.) Lending for home buying is regulated and conservative in Germany, preventing joint credit/housing booms. (You’ll recall that German banks had to dive headlong into American junk housing securities and Southern European bonds to get themselves into trouble, since their own economy wouldn’t produce enough product.) Homeownership and renting are roughly balanced, and home prices have had no tendency to increase dramatically. Homes in Germany are what a naive economist might predict they should be, a very durable consumption good that provides a stream of housing services, not a ticket to financial gain at all. Germany’s cities are very affordable relative to their counterparts elsewhere in Europe and in the United States. Germany’s housing success seems boring, in the way that your chest might seem boring to a guy who has just been stabbed and is spurting blood from a ventricle. Boring, but wonderful.

Boring Germany, sci-fi Singapore, or something else entirely. Urban housing is a really hard problem. We’ll need lots of inspiration. That economics textbook might help a little, but don’t try to use it as a cookbook."
housing  economics  via:tealtan  2015  steverandywaldman  germany  singapore  us  capitalism  cities  urban  sanfrancisco  rents  inequality  affordability  regulation  policy  ryanavent  edwardglaeser  paulkrugman  kevinerdmann  mattrognlie  exclusion  outcomes  risk  aggregation  matthewyglesias 
december 2015 by robertogreco

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